Công văn 5228/NHNN-CSTT

To: Foreign credit institutions and bank branches

Recently, application of the achievements of the fourth industrial revolution to financial technology (Fintech) around the world as well as in Vietnam has led to the advent of new products and services, among which is Peer-to-peer Lending (hereinafter referred to as P2P Lending). Regarding this field, the State Bank of Vietnam (hereinafter referred to as the State Bank) requests foreign credit institutions and bank branches (hereinafter referred to as credit institutions) to take note of relevant matters as follows:

1. P2P Lending is designed and established on digital technology platforms, directly connecting borrowers with lenders (investors) without the participation of financial intermediaries. Thus, all activities related to borrowing money and paying debts (principal, interest) between borrowers and lenders are recorded by online transaction platforms of P2P Lending companies and digitally stored on database systems of these companies, and uploaded and accessible to registered customers. In Vietnam, some companies register their business lines as financial consultancy and/or financial brokerage and introduce themselves as P2P Lending companies that connect investors and borrowers. However, Vietnamese law has yet to provide for P2P Lending.

2. With the abovementioned characteristics, P2P Lending may play a role in assisting financial inclusion, building capacity and creating more channels for access to financial resources and lending types for the economy, especially for marginalized groups in the society (with internet access); thus, contributing to the elimination of predatory lending. However, P2P Lending also comes with many latent risks (lending risk, information risk, anti-money laundering risk, cyber security risk, etc.), which may have adverse and disadvantageous effects on social security. To be specific:  

2.1. Some P2P Lending companies take advantage of the people's lack of information and knowledge to advertize and provide obscure, misleading information which makes investors wrongly believe that all investment/lending via P2P platforms are covered by risk insurance.

2.2. As P2P Lending is quite new, online transaction platforms of P2P Lending companies have yet to be inspected and evaluated by competent authorities, thus, they posing the risk of cyber attack and information theft, leading to losses for all participating parties. Some P2P Lending companies are channels for distributing and finding customers for financial companies, pawn shops or pawn shops cooperating with technology companies in building online transaction platforms to find borrowers. Among those companies, there are some pawn shops that on-lend foreign loans or loans from domestic individuals and/or organizations. Some individuals/organizations may exploit the P2P Lending model to carry out wrongdoings (predatory lending, usury, illegal activities disguising as pawning, multi-level financial activities, etc.), put up dishonest advertisements, and promise high profits and/or competitive interest rate so as to appropriate money from the people; adversely affecting people’s lives, economic security and social stability. In some cases, P2P Lending companies and pawn shops show signs of violating Article 8 of the 2010 Law on credit institutions (amended in 2017) via banking operation in the form of credit extension. ¹

3. Therefore, so as to ensure system safety, the State Bank recommends credit institutions to:

3.1.  Do research and understand thoroughly the risks from P2P Lending; accordingly provide instructions and information within the credit institutions (including their subsidiaries and associate companies) on latent risks of P2P Lending, including legal risks and other risks from P2P Lending due to the lack of a complete framework for regulations on P2P Lending;  thus, regularly review procedures, models of organization, operation, internal management, etc. of credit institutions so as to prevent possible risks.

3.2. Conclude and execute agreements with P2P Lending companies with caution to ensure that negotiation, conclusion and implementation of such agreements are legitimate and do not affect the operation and prestige of credit institutions and banking systems; thus, ensure the safety of financial and banking systems, social security and public order.

3.3. During transactions and cooperation with P2P Lending companies, credit institutions should request P2P Lending companies to announce fully, transparently and honestly information on cooperation and transaction contents between P2P Lending companies and credit institutions in all messages and means of advertisements, communications and sales that P2P Lending companies deliver to consumers and relevant parties. Credit institutions should regularly monitor announcements on the cooperation between P2P Lending companies and credit institutions to promptly detect inaccurate and/or insufficient information announced by P2P Lending companies that may cause damage to consumers and relevant parties (if any) and produce appropriate resolution.

3.4. Ensure that cooperation, connection and transactions between credit institutions (including their subsidiaries and associate companies) and P2P Lending companies are safe, efficient, capable of protecting legitimate rights of credit institutions and customers and conformable with relevant regulations.

For your reference and compliance./.

¹ Article 8 of the Law on credit institutions stipulates: “1. Organizations that fully meet the conditions under this Law and other relevant laws and are licensed by the State Bank may conduct one or some banking operations in Vietnam. 2. Individuals and organizations other than credit institutions are prohibited from conducting banking operations, except escrow, purchase and sale of securities by securities companies”.